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Monthly Archives: August 2011

When people ask me why it is that I started PlaneBusiness, why it is I continue to work as hard as I do every week producing it, (except on weeks like this one when I am supposed to be “on vacation”) and what inspired me to think I could do it in the first place, I invariably think about the quote below.

There is a longer version of the quote, but this excerpt is the one that was used in the Apple “Think Different” commercials. A legendary campaign in advertising lore, and an enduring reminder of a way of looking at the world that is no less important today — and perhaps even more so — then when the campaign was first rolled out in 1997. No coincidence that 1997 was also the year I founded PlaneBusiness.com and PlaneBusiness Banter.

While the “Think Different” campaign served as a mantra to those of us who are crazy enough to think we can make a difference –the misfits, the round pegs in square holes with no respect for the status quo — the quote is, at its heart, an apt description of Apple’s brilliant co-founder — Steve Jobs.

“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do. “

That is why today is a sad day. A very sad day.

Steve Jobs announced today that he is stepping down as CEO of Apple — a result of his increasingly fragile health. While it’s not clear exactly what he is now suffering from, we all know what this news really means. The misfit, the rebel — the troublemaker — is in trouble.

Thank you Steve for your genius, your creativity, and your incredible sense of design that was always so seamlessly coupled with intuitive functionality.

Hello everyone. This week’s issue of PlaneBusiness Banter is now posted. This week we wrap up our Q2 earnings coverage with a look at Air Canada and WestJet. Bottomline? WestJet turned in a terrific performance. For Air Canada, the airline has made good progress wading through the swamps of its myriad of labor contracts that came up this year, but the airline was close-mouthed about its efforts at pension restructuring it is trying to incorporate in the new contracts.

Meanwhile, RASM performance at Air Canada lagged, the airline still has that large overhang of debt, and oh yeah, there are those pension obligations.

Meanwhile, the airline still sounds as though it intends to go through with its idea for a new low cost carrier.

I still say that is a mistake.

In other news, we look at the DOT Air Travel Consumer Report for July. Yes, the rather obvious decline in the on-time stats of US Airways continued in July, as did the abysmal showing for American Eagle in three out of four categories.

Lots of labor follow-up this week including; Southwest pilots; AirTran pilots, United baggage handlers, mechanics at American Airlines; and Delta Air Lines‘ pilots.

How about this effort on the part of a group of Delta Air Lines‘ pilots to start their own independent union? They claim they have more than 3300 pilot members and their hot-button issue is …scope.

Meanwhile, we’ll update you on the latest in the AirTran/Southwest pilot contract activity. Last week some Southwest Airlines‘ pilots were upset after SWAPA sent out a letter detailing some of the terms of the proposed deal. Meanwhile, AIrTran pilots have yet to see anything, as their MEC still hasn’t decided if they are even going to a copy of the deal.

[Insert the voice of the old commercial for that silly game "Operation!" Only insert "Arbitration!" instead.]

And — then there was the ALPA representational election at JetBlue. JetBlue pilots voted no.

American put out more details about how it plans to “spin-off” Eagle last week. Apparently there are no third parties involved at this point in time.

Bob decided to follow up on Southwest’s second quarter comments concerning business travel. Essentially the airline said in its earnings call that revenues, particularly business fares, were weak in the second quarter. Compared to the rest of the industry, Southwest’s revenue performance — both business and leisure– lagged.

Bob’s hunch? The airline had been too aggressive on fares.

Following up on his own experience flying out of Kansas City over the last year, when he says he has repeatedly found lower fares on legacy carriers than on Southwest, Bob decided to do a broad random sample of fares in a selection of markets to see if his theory about the airline having higher prices than the competition would hold up.

As he explained in his note,

“For each itinerary, we priced out two different close-in journeys and logged in the prices.

First, we selected 8 origin cities from across the LUV network, seeking both more and less active cities. For each of these origins, we then selected the top 50 LUV destinations from each origin and then randomly selected 20%, or 10 destinations, from among the 50 largest destinations for each origin.

…Upon review of the data, it seems Southwesthas a different pricing regimen against Alaska Airlines in Seattle than in the other cities. Southwest seems to be more aggressive in pricing below Alaska. For this reason, we excluded Seattle data and reduced the study to the 70 markets out of the 7 remaining cities.

…For the 140 trips on 70 random itineraries, there was a consistent pattern on 50 of the markets. Southwest was more expensive in 40 of the 50, or 80% of the trips. The legacy airlines were more expensive on 10 or 20% of the trips. When Southwest was more expensive,it was, on average, a $134 higher fare— a 26.4% premium. We obviously don’t know whether this pattern is driving the slower business travel on Southwest. Nonetheless,there is clearly a trend that we will continue watching in coming months.”

Having said all that, however, as McAdoo notes, if Southwest continues to slow down its capacity growth, not only will that help Southwest, it will help the rest of the industry. “A lid on LUV growth should be good for LUV and for all airlines,” he writes.

An update on the situation involving the AirTran ALPA MEC that I posted earlier this week.

The Southwest Airlines SWAPA Communication Committee has issued an update today to the Southwest Airlines‘ pilots in which they say that the AirTran MEC is now meeting in Atlanta to discuss the Side Letter 9 — that’s the pilot seniority agreement to you lay people out there.

This, after earlier in the week, the AirTran MEC had notified SWAPA leadership that the meeting had been “postponed indefinitely.”

Hmmmm. Sounds like somebody came to their senses.

I don’t care what the AirTran ALPA MEC eventually decides — that is their call — but I think they need to make a decision one way or another — which will then allow the process to continue. If the AirTran ALPA MEC decides to send the agreement to the rank and file for a vote, then we’ll see a roadshow start almost immediately.

From the SWAPA Communications Committee, August 11, 2011:

Fellow SWAPA Pilots,

Late yesterday evening, the AirTran MEC Chairman informed SWAPA president, Steve Chase that their MEC was in ATL and had started their MEC meeting originally scheduled for this week. Notice was given earlier in the week that they were postponing their meeting until some internal items and language was received for their review.

With their MEC convened in ATL, we expect their MEC vote on their equivalent of our Side Letter 9 at some point during their meeting, and we don’t know how long it may run.If their MEC votes to send the agreement to their membership, we have an extensive roadshow schedule planned to visit every pilot base in the next three weeks. In the meantime, we continue to wait on their MEC to determine if we are going on the road. As soon as we have more information we will pass it along.

No surprise that last week Southwest Airlines touted the fact that its pilots and the pilots at AirTran had already negotiated a seniority agreement as part of the airline’s merger process during its quarterly earnings call.

Given the dysfunctional situation that continues with the pilot group at US Airways, after America West acquired US Airways, and the ongoing difficult talks going on with the pilot groups of both United and Continental as they try and hash out a contract and seniority agreement, the airline had a reason to be happy.

And, as best as we could tell, after a bit of initial squawking, it did appear that the pilot group at Southwest was probably onboard with the deal, as we talked about last week in PlaneBusiness Banter.

The problem is — the AIrTran ALPA MEC was supposed to meet and give its “thumbs-up” to the deal and then push it out to members for a vote. Two weeks ago. Then it was last week. Then it was supposed to be this week.

No meeting.

Today, the AirTran MEC notified their counterparts in Dallas that the meeting of the MEC to discuss the deal has been postponed “INDEFINITELY.”

The official SWAPA correspondence is included here.

Update from your Executive Team

Two weeks ago, your board of directors reviewed the contents of Side Letter 9 and voted unanimously to send it to the membership for ratification. Since that time we have been waiting for the AirTran MEC to administer their meeting and decide if their membership will be voting with ours on the agreement. Meetings on their end, which were originally to coincide with ours, have been pushed back multiple times. They were scheduled to meet this week, Wednesday through Friday, to finally make a decision at their board level on the merits of this agreement. This afternoon, however, SWAPA was notified by ATN-ALPA via email that they have postponed their scheduled meeting indefinitely.

We have given you outlines of what this deal entails for you with the final language. A much broader education plan is in the works, if this deal is approved by their MEC. We know many of you are waiting (with continued patience) for further explanation and data, but we must still hold off until a decision on their end is made. In the meantime, SWAPA will continue preparations for arbitration.

We will update you as often and as thoroughly as possible as things progress. These delays don’t help either pilot group or the Company. “

Good evening everyone. In this week’s chokingly long issue, we take our magnifying glass to the recent earnings results reported by Southwest Airlines, SkyWest, Allegiant, RepublicHoldings, and Pinnacle. Yes, a rather strange mix of subjects this week.

In the case of Southwest Airlines, this quarter’s results were a lot noisier than expected, as a result of the way the airline is reporting its numbers –re: merger with AirTran. Revenues were also not as good as had been expected. As one analyst wondered, did the airline push fares higher too hard, too fast in the spring? Whatever — the airline came in under expectations.

The airline was also one of the few that reported that its “business traveler” revenues showed a softening during the quarter. This was in contrast to what some other airlines reported.

As for the three regional airlines — it continues to be a period of transition for all three. SkyWest finally admitted what we have thought for six years — the merger with Atlantic Southeast has never really gone as well as they had anticipated. Now, they are trying to layer the ExpressJet merger on top of ASA.

With Pinnacle, the airline has a totally new executive team to work out the details of merging three airlines together. ‘

Then there is Republic. The fixed fee basis continues to make money. Just not as much as it used to make because of shrinking margins. Then there is Frontier Airlines. The airline lost a ton of money during the quarter. The restructuring continues.

Finally — Allegiant Travel also reported earnings last week. Again — another airline that finds itself in a period of transition. New aircraft types, sharp reductions in capacity as a result of higher fuel prices, new engine overhauling program, ETOPS certification fun, seating modifications to all existing aircraft — a lot of stuff going on out in Las Vegas.

It was a horrible week for airline stocks last week — but I agree with a couple of analysts who put out notes Monday and Tuesday. This is a great time to load up on airline stocks. If they are the right ones. Oil has tanked, demand still looks good, fare prices are still good, the airlines got a little revenue bump as a result of the FAA snafu, and well, yeah, airline stock prices have been, for the most part, beaten to a pulp.

We look at break-even load factors and operating margins for the second quarter. Question of the week — which airline finished dead last in both important metrics?

All of this — and more in a 160 plus page issue this week. Subscribers can access this week’s issue here.

Hello everyone. It’s that time again. Time for this week’s issue of PlaneBusiness Banter. This week we take our in-depth view at the recent earnings calls and results from Hawaiian Holdings, Delta Air Lines, JetBlue, and the newest member of the U.S. publicly traded airline community — Spirit Airlines.

Spirit easily blew past analyst expectations for the quarter, and I must admit, it was fun to listen to a call from an airline that has such a very different business plan. Reminds me of when Allegiant first came on the scene. And years before that, Southwest Airlines was the airline that was pushing its lower costs, its “different” business model of simply low fares, and its low cost structure. Now — the new kid on the low cost, high-growth block is Spirit Airlines.

In addition to our earnings coverage, we spend a lot of time talking about pilots and pilot unions this week. From pilots calling in sick at Continental to ALPA severing a mutually beneficial deal with the Allied Pilots Association that had included the services of a well-respected union negotiator Seth Rosen, as a result of APA hot heads sending out anti-ALPA missives to American pilots — it has been a very “labor-intensive” week you might say.

But all of this angst pales in comparison to the paperwork that accompanied US Airways’ request for a preliminary injunction against its pilot union, USAPA, and the union’s President, Michael Cleary.

The suit, which was filed last Friday accuses the pilot union of of “directly instigating the illegal slowdown by encouraging pilots to delay flight departures, not complete certain training requirements, decline to fly on the basis of fatigue, increase maintenance write-ups, and generally slow down in the performance of their duties — and also by threatening to expose and retaliate against those pilots who do not participate in the slowdown. Although USAPA is encouraging pilots to change their behavior under the guise of “safety,” USAPA’s own communications confirm the true purpose of its campaign is illegally to slowdown US Airways’ operation in order to gain leverage in contract negotiations.”

But it’s not all unions and earnings.

Oh no.

Then there is the latest from Washington.

While the people who were elected to Congress finally managed to cobble together some kind of debt ceiling/budget compromise and both the Senate and the House managed to sign off on it, one thing that was not taken care of before both the House and Senate shut down work for the rest of the month was — a funding authorization bill for the FAA.

That’s right.

The bad news is that this means FAA-funded projects across the country will remain stopped in their tracks, more than 4000 FAA employees will remain laid off, and other FAA workers will continue to work more or less on an emergency basis.

But — on the plus side — (at least if you are an airline CEO or CFO) this could mean an additional $1.5 billion in revenues for the U.S. carriers — as a result of the ticket tax not being collected. That is, unless they begin to start rolling out a series of off-the-wall fare wars.